Crypto Exchange Manipulation: Is It Controllable?

By Steven Krohn · August 6, 2018

“Exchanges say that more than half of all trades are now executed by just a handful of high-frequency traders, who use rapid-fire computers to essentially force slower investors to give up profits, then disappear before anyone knows what happened.” – Charles Duhigg

Crypto Exchange Manipulation

Recently, numerous articles have been written by several reputable online publications. The subject has been “the extent crypto exchange manipulation exists and how it leads to price fixing.”

One article was published recently by “BlockCrypt” where they examined the depth of deception practiced in crypto exchange manipulation.

It is all designed to take advantage of investors.

A representative of an exchange admitted that they can “assist” new coins to achieve a daily 50 BTC trade volume. A service “fee” was obviously involved.

Also, traders from that coin’s team were permitted to become market makers without paying a transaction fee.

How does this help a new coin? Creating a high volume of trades allow the coin’s ‘candlestick’ to look stable while demonstrating activity to investors.

The size and width of a candlestick is taken into consideration during an EMA hourly analysis of cryptocurrencies.

The higher and wider the candlestick, the more profitable it appears to investors in the market.

The use of a trading bot was offered. The bot helps the coin manipulate the price and create a market cap. The exchange offered to provide the API to the coin’s engineering team to customize it for their benefit.

All this demonstrates that there continues to be crypto exchange manipulation.

Fake Trading

Fake trading occurs in the traditional financial markets where it is illegal and under regulations. Identifying fake trading in a highly unregulated cryptocurrency market shouldn’t be surprising.

The amount of activity dominating the space should raise major concerns.

Consider the following chart from Medium.

Source: Medium

The chart represents average slippage and volume of pairs for several tokens that have a daily trading volume over $100k. This took place on four major exchanges: Bitfinex, GDAX, Kraken and OKex over a 24 hour period.

Notice the blue dot at the bottom right? It represents a GDAX pair with a volume close to $200m and a slippage of less than 0.1%.

The chart is telling for two reasons. First, it shows how OKex pairs (in red) all have a much higher slippage relative to the volume. Second, other exchanges were behaving much more reasonably and consistent.

This is an indication that most of the trade volume shown is fake and deceptive.

Cryptocurrency Exchange Withdrawal Fees

Another scandal coming to light is the high withdrawal fees charged by exchanges. Yet another form of crypto exchange manipulation.

When registering with an online exchange, the process is usually free. Depositing funds into your account remains free of charge routinely.

Funds are transferred from fiat, or cryptocurrency, into your account less transaction fees.

When trading on an exchange, a small percentage is typically charged. Trade makers are usually charged a lower commission. Commissions for others are slightly higher (0.25%) on most exchanges.

That seems reasonable enough. This is how exchanges are designed to earn the majority of their income.

Simply, they provide a service and they get paid for it.

The problem seems to be with excessively high withdrawal fees. Exchanges are not offering full disclosure when you open an account.

Some exchanges charge up to a 5% to10 % fee to withdrawal coins then transfer them into a fiat currency account.

Some arguments are being made to the contrary. The logic is that when withdrawing a coin on an exchange they pay an on-chain transaction fee.

The exchanges need to make a profit. They charge you a percentage of the total transfer value. Some exchanges include the transaction fee within the exchange fee, while others are charging you twice.

In The End

Most traders in cryptocurrency are not technical enough to understand how withdrawal fees are calculated. Often, they cannot properly interpret technical charts.

We believe that greater transparency and regulation of the exchanges will help improve the efficiency of trading.